November 24, 2008

Global Market Comments for November 24, 2008
Featured trades: (C), (GS), (MS), (NVDA), (GLW), (BRCM)

1) OK, so it was a tough week! Quit whining! Wipe you nose and get back out there and put some trades on! No one ever said this was going to be easy. If it was, your cleaning lady would be running a hedge fund for minimum wage, for cash payments only. After a Marine crashes, the first thing they do is stick him back into a plane (Semper Fi!). I tell investors that if you use limited risk options strategies along with stops you can make a living at this business being wrong 40% of the time. If you are wrong 30% of the time, you are considered talented. If you are wrong 20% of the time, you are promoted to the head of the proprietary book at Morgan Stanley. The people who are wrong 10% of the time, you only read about in the newspapers when they buy a piece of modern art for $100 million. Only God is never wrong, and even Him, you have to cut some slack once in a while.

2) In the past year, the market cap of Citibank has dropped from $200 billion to $20 billion. This is what happens when the Treasury forces you to bring toxic, off balance sheet liabilities back on to your balance sheet. The Treasury's TARP initially gave C $25 billion, then another $20 billion with today's bail out, with $306 billion in loan guarantees. It really is too big to fail, so the question is, what form will it take in any restructuring? A merger with Goldman Sachs or Morgan Stanley, who could use C's deposit base, is the most likely scenario. At $5/share the stock has essentially become a cheap, perpetually dated call, and is worth a gamble here.

3) There are now 105 companies in the S&P 500 with share prices under $10, the most in history. The 1987 record was 59 companies. The incredible thing is that several of these, like NVIDIA (NVDA), Corning Glass Works (GLW), and Broadcom (BRCM) are trading at 75% of cash on the balance sheet. I saw the same thing in Tokyo in the late nineties, and they all turned out to be huge buys.

4) William Safire believes that the new English language word of the year will be 'frugalista', defined as 'a person who lives a frugal lifestyle, but stays fashionable and healthy'. Says a lot about our times. I've added it to my spell checker.

5) My old cleaning lady called me last night for a job. She said all of her employers had recently let her go because they couldn't afford her anymore. Another sign of the times.

6) The National Association of Realtors says that October existing home sales fell by 3.1%, to 4.8 million. The median home price dropped by 11.3%, to $183,000, the sharpest plunge on record. Foreclosures accounted for 45%, a figure that in itself does not inspire conference. Expect the economic data for October and November, which will dribble out over the next few months, to be some of the worst in the economic history of the US.